One of the things that seems to be common amongst people working in start ups is the idea of “the exit”.

In the days before this current wave of digital technology transformation, to set up a company you needed some serious capital. To manufacture things you needed factories and hardware. To provide some sort of service you needed resources and people. Companies would establish, and then often go to the stock market to raise capital to invest further into their venture. Great dynasties were thus formed – from the still-giant media and automobile companies to the oil firms and others.

Then, with the rise of the PC, then the internet, and even more so with Cloud infrastructure, those barriers to entry were significantly dropped. To start up you needed an idea, some talent, and the ability to take a few risks by skipping a few years of gainful, salaried employment.

These days, on the rare occasion that a company goes to the stock market for the first time, it seems it’s not to raise capital to invest but to raise capital to pay out the founders and initial investors (the exit). The massive cash reserves held by the big tech companies, and frequent share buy-backs show how little money they apparently need from the market.

But the “listing on the stock market” exit seems a rarity these days, in comparison to the “being bought out by a big company” exit. This has some serious consequences – particularly that much entrepreneurism is fairly short term, and it’s not going to build up sustainable long-term businesses and employment. Can you think of a British-founded company from the past few decades that’s become a big business, standing alone? My best bet is Dyson, which whilst hugely successful, is hardly General Electric.

In recent months the government has been making increasing moves to try to push more government contracts to smaller-sized businesses. A lot of the focus seems to have been on reducing the process overheard of pitching and winning into Westminster behemoths – but the rush towards an exit poses a risk.

I just saw a Cabinet Office tweet stating a target of 25% of central government spend by 2015:

But what’s to prevent those smaller firms becoming the target of aggressive acquisition strategies by bigger firms? Might we end up with a world where big players in consulting and service provision sweep up government contracts through a secondary route, then leaving horrible issues of M&A integration as well as the traditional questionable ability for large-scale private sector firms to successfully delivery in the public sector.

Binding small firms into no-acquisition contracts would be a horrible restriction of trade, but I do fear that small-scale contracts with SMEs acquired at a later stage by big firms will be worse than the problems that we’re currently trying to fix. And knowing how many contemporary entrepreneurs seem to be fixated on “the exit” it’s a very real risk.

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